By Dan Kervick
Evan Soltas is hoping that President Obama’s appointment of Janet Yellen signifies a new administration commitment to jobs and economic growth. Unfortunately, Soltas seems to be one of those folks who is convinced that our failures over the past five years have much to do with a monetary policy that has been insufficiently “accommodative”, and he strongly suggests that the national plague of mass joblessness and stagnation could be alleviated if the Fed would only do more aggressive quantitative easing without political pressure to taper prematurely.
It’s a sad fact that, five years into his presidency, Obama has shown little interest in nudging monetary policy toward growth — or even just appointing growth-minded policy makers. Yellen changes that. She has been outspoken about the need for the central bank to support a U.S. economic recovery with accommodative monetary policy — and, in particular, to reduce unemployment. Meanwhile, Obama has been an outspoken, if not well-argued, advocate for the hawkish view that continued easing creates risks of financial bubbles and instability.
Those comments aren’t at all out of place in the Obama administration’s view of monetary policy. You can hear his emphasis on risks that would cause the Fed to tighten. It’s strange to see the president, who you would think wants the economy to grow, so ready to throw away his best option to realize that outcome. And it is a particularly egregious error when, as Obama knows, Republican opposition means fiscal policy cannot ride to the rescue. With Yellen, though, Obama has been forced by members of his own party to hand over the top job in monetary policy to someone decidedly not of his persuasion.”What I’m looking for” in a Fed chief, he told the New York Times back in July, is somebody “to keep inflation in check, to keep our dollar sound, and to ensure stability in the markets.” Amid high unemployment, Obama wanted someone who’d still “keep an eye on inflation, and if it starts heating up, if the markets start frothing up, let’s make sure that we’re not creating new bubbles.”
Notice the pooh-poohing of concerns about bubbles and froth, as though somehow a strong preference for financial stability and sustainable patterns of investment and growth goes hand-in-hand with a stodgy taste for stick-in-the-mud stagnation and “tight money”. It’s dispiriting that so many of the young, center-left thinkers seem unable to escape from the dominant neoliberal frameworks of mainstream neo-monetarist economics. In the mental model these writers constantly bring to bear there seem to be just two basic camps: On the one side you have “easy money”, higher inflation, bubbles, instability, growth and high employment. On the other side you have “tight money”, lower inflation, sound finance, lower growth and higher unemployment. The suggestion seems to be that bubbles, instability and inflation are just the price we have to pay for a dynamic and growing economy, and so fighting bubbles means suppressing growth. And the story goes that the difference between tight and easy money is supposed to have something to do with direct Fed control of the money flow.
But there is no reason that aggressively pro-growth, demand-side policies need promote bubbles and financial instability. Targeted, committed and sustained federal spending could drive powerful, innovative growth and job creation without promoting bubbles. The United States could launch a new program of mission-oriented public investment in which the government bears much more of the economic risk as the financier of last resort, while the risks to the private sector are greatly lessened as private firms are able to get their own investments in line with a clear and predictable national strategy. And given the government’s nearly infinite capacity to absorb financial burdens, the risks that the public sector bears on this approach are just the risks of inadequate investment outcomes, not the risks of financial fragility, collapse and debt deflation. The downside can be covered with stabilization programs if the public consumption and investment programs don’t succeed as well as hoped. But such programs have succeeded in the past, and continue to succeed in hungry countries with a “developing country” mentality. The US could use a lot more of this attitude.
It is a trait of neoliberal thinking to believe that the US economy is all about shot-in-the-dark risk-taking, as bold entrepreneurial heroes sally forth on a wing and a prayer to develop new kinds of pet rocks, video games, online retail sites and tastier taco fillings, and that frequent bubbles and failures are the inevitable cost of ready financing and “accommodative” monetary policy. This is the kind of giddy and historically uninformed free-market fundamentalist thinking that has gripped the US during our recent and highly regrettable neoliberal era, and it is depressing that many of our younger thinkers have swallowed so much of this story. It is responsible for a period of national devolution and failure bordering on an embrace of barbarism.
But returning now to Janet Yellen, Soltas is made hopeful by some of her statements:
Compare that to Yellen: “My colleagues and I are acutely aware of how much workers have lost in the past five years,” she told the AFL-CIO in February. “These are not just statistics to me. We know that long-term unemployment is devastating to workers and their families.”
….
It’s never been clear why Obama has talked like a hawk — or why, as Matthew Yglesias pointed out in a 2011 piece in the journal Democracy, why the left hasn’t fought more aggressively for more growth-oriented monetary policy. But maybe Yellen will help him change his tune.
Soltas isn’t specific about what, exactly, he is hoping Yellen will do, but he seems to be angling for little more than the same kinds of string-pushing and asset swapping that the Bernanke Fed has tried, but with a stronger commitment to doing them harder and longer. But more monetarist re-hashing won’t cut it. The most important thing Janet Yellen could do upon assuming her new position at the Board of Governors, if she really cares about growing the economy and creating jobs, is to march right over to some live Congressional hearing and publicly lambaste both Congress and the White House, in the most strident terms becoming her position, for spending five years doing a criminally crappy job on our economy, and for smothering US growth, well-being and national development under the wet blanket of debt hysteria. Really, Congressional Republicans, Congressional Democrats, Obama … for shame!!!! What in the world have they been doing? They have responded to a crisis calling for bold government action and epochal transformational initiatives with a ridiculous campaign of white-knuckled bipartisan bean-counting, debt hysteria and obsequious servitude to the crony stake-holders in the same rotten economic order that generated the crisis. It’s been a two-party No-We-Can’t agenda that would make even Herbert Hoover blush with embarrassment.
And if Yellen wants to be really bold, she could offer the Fed’s assistance in launching a special program of mission-oriented public investment, with creative forms of public financing directly organized through the central bank. She could break with the current global wave of financial sector hand-wringing over the lost “independence” of central banks and remind Congress that the Fed is a creature of Congress; that it exercises every power it has by virtue of the legislated delegation of Congress’s constitutionally granted monetary authority; and that Congress can and should re-structure monetary policy and public financing institutions when the national interest calls for such a step. It’s calling now.
Yellen might also mention that continued Fed asset purchases, while they might be marginally helpful in holding down long-term interest rates – for what that is worth – also drain financial assets from the economy as the other side of the same swaps that add them, and that these asset purchasing programs are a rather weak, trickle-down economic tea whose effects are primarily limited to the financial markets and wealth extraction rackets. Trading dollars for very liquid bonds in an overly-financialized system that is primarily devoted not to jobs and growth, but to extracting every free cent that flows onto corporate balance sheets for the benefit of shareholders and executives, and that is already sitting on mountains of liquid assets, is no substitute for a jobs program and no substitute for a growth program.
The best thing Janet Yellen can do at the Fed? Tell the political branches to stop punting their responsibilities over to the Fed! The Fed simply can’t do what an energized and progressive national government can do. The center-left strategy of pretending that it can empowers reactionary politics, buttresses the reign of corruption and privilege, validates inequality and exploitation, and points toward generational failure.
Cross-posted from Rugged Egalitarianism
Fed Chair can send strong signal just by putting up some honest statements. Tell Congress that US doesn’t face a debt/deficit crisis. US face a political crisis – the crisis of ignorance, incompetence. A crisis of moral and intellectual bankruptcy. Tell that money is no object. Tell why US is not Greece. Tell that US is no longer on Gold standard hence US cannot default ever unless idiotic Politicians force it to do so. Tell that Balanced budget is a recipe for economic catastrophe. Tell that Bipartisan Austerity agenda is completely unfounded and unnecessary. Tell that financial crisis was caused by Wall Stt. not by excessive public spending. Tell that over financialization and Casino economy has become a parasite on real productive economy. Tell that Social Security and other programs are fully sustainable and Govt doesn’t need the obsolete ideas of Trust funds.
Maybe Yellen needs to go further. Tell that Political failures, economic depression and continuous crisis is drifting American people to the extreme right. Tell that Tea Party is a gang of extremists, lunatics and out and out Fascists. Tell that Debt ceiling is completely obsolete idea as US is no longer on Gold standard. Tell that Debt ceiling is used by Politicians just to pursue their sinister goals and pushing forward Austerity Agenda.
One thing Yellen MUST MUST say – That QE doesn’t create jobs.
…………..But all the things that Yellen needs to say, isn’t gonna say. Why? Because she’s just a clone of Bernanke. I don’t know why some Left Liberals love Yellen. I don’t know why people in eco blogosphere are optimistic about Yellen. But I am sure Yellen, like Bernanke, believes that US has a long term Debt and fiscal responsibility problem.
I don’t know why Dan got so immersed in Fed chair issue. I personally see this whole issue as non event. Sure i am happy that we got rid of Summers. But i don’t see some “Good person” to become Fed Chair and fixing things. Ain’t gonna happen.
Though what you say is very sensible I agree with you Yellen won’t be Yellin ’em!
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I suggest it would be better if the entire Federal Reserve Board sent the message to Congress that monetary and fiscal policy should be in harmony. Today they are not. The Fed, since December 2008 have set the interest rate at 0-.25 which has been insufficient to create robust growth. Further stimulous is needed until the economy reaches “escape velocity”. Then, we should return the tax rates at least to where they were in the Clinton administration to deal with the debt created by “supply side” tax policy, fund two trillion dollar wars, and, the loss created by the collapse of the financial system. Borrowing money to fund “supply side” tax cuts for the wealthy is not a good idea.
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Use the Bill Black to Akerloff connection to have the UMKC economists dialog with Janet Yellen. I think, that it would be very worthwhile.
“bold entrepreneurial heroes sally forth on a wing and a prayer to develop new kinds of pet rocks, video games, online retail sites and tastier taco fillings, ”
Classic Dan…. just classic! Like “Starbucks” we have had coffee for 2,000 years… this whole ‘entrepreneur’ thing is a crock… what have these people ever really done? rsp,
Hi Matt,
There was a professor at Harvard Business School who wrote on some other blog I used to read and who was always touting entrepreneurialism as the salvation of everything. He thought that in the modern world, everyone had to be an entrepreneur. The problem is that in the real world, most people don’t create businesses, they work for businesses that other people have created. So unless he thinks that in the future the economy will consist of 150 million one-person firms, the idea that everyone needs to be an entrepreneur is for the birds.
And as Mazzucato and others have argued, the whole idea that enterprises are created by light bulbs going off in the heads of individual heroes is not a reflection of reality.
Nice post, Dan. Very nice. Keep on hammering the MMT-Mazzucato link. IMO, it’s the most exciting development in progressive econ/policy in decades.
Some comments gleaned from various posts about Yellen and a couple of my own:
Yellen may be the richest central bank head in history. Her reported investments were at least $4.8 million in 2012. Estimates range up to around $13 million. A year later, her wealth may be millions higher. She’s privy to inside information. She helps make it. She’s able to take full advantage. So can other Fed governors. They’re all millionaires. They want sustained easy money to make more of it. They want in on the gravy train. They want maximum benefits accruing to them. So do congressional members. The Senate is known as a millionaire’s club. Half or more of all House members are millionaires.
Some congressional members and high-level appointed bureaucrats have extraordinary wealth. They want policies affording them maximum benefits. Bernanke will be remembered as the economy wrecker of last resort. Yellen will keep the status quo going.
When finance capitalism prospers at the expense of ordinary people, economies are hollowed out in the process. Neofeudalism follows. Ordinary Americans were swindled. They lost their well-being and futures. Monied interests benefit at their expense. Regressive Fed policy bears much responsibility. Congressional and administration criminal malfeasance shares blame.
Bernanke looted America. He did so for nearly eight years. Yellen will continue the same b.s.policies.
She’s a wolf in sheep’s clothing. Under Yellen the crises in the economy, financial markets and systemic-solvency, with the post-2008 panic environment little moved towards sustainable and renewed normal activity, despite the fancy footwork, will continue. It’s wishful thinking to believe America’s fiscal issues will be resolved or the crisis contained, under her reign. She believes they already have been wholeheartedly.
Fed/Treasury/administration/congressional policies destroyed “a livable future.” Cover up and denial can’t hide what’s too visible and real. Things will be much worse ahead than now.
Yellen was the obvious choice if – and only if – you believe that the current direction of the nation’s powerful central bank is the correct one for the country.
She’s been much more than an engineer of the Fed’s policies of quantitative easing’ and ‘forward guidance.
She’s been a consistent voice to go further. Her strong economy/sound financial world is pure fantasy. She’s down with all of the neo-liberal big lies. She’s “honored and humbled” to accelerate business as usual. Her mandate assures worse than ever human misery; globally. Safeguarding America’s financial system involves intensifying the greatest wealth heist in human history. She’ll work furiously to that end.
“Mr. President,” she said, “thank you for giving me this opportunity to continue serving the Federal Reserve and carrying out its important work on behalf of the American people”. She omitted explaining her mandate involves transferring maximum wealth to America’s 1% already with too much.